I am a long term buy and hold investor who focuses on dividend growth stocks

Monday, February 13, 2017

Seven Dividend Stocks Rewarding Shareholders With a Raise

Every week, I review the list of dividend increases as part of my monitoring process. I usually focus my attention on companies that have managed to boost annual dividends for at least a decade. This increases the odds of identifying companies that pay dependable dividends, and are committed to growing them over time. I then also review the trends in operating performance, such as earnings per share, in order to determine whether the business can support future dividend hikes.I follow a similar,but slightly more detailed process every few weeks or so, when I screen the list of dividend champions and contenders for investment opportunities. All of this helps me familiarize with story of as many companies as possible. That way, when the right quality company is available for sale at a good valuation, I can take action.

There were several companies which raised dividends to shareholders over the past week. The companies include:

3M Company (MMM) operates as a diversified technology company worldwide. The company raised its quarterly dividend by 6.80% to $1.175/share. This marked the 59th consecutive annual dividend increase for this dividend king. Over the past decade, the company has managed to boost annual dividends at a rate of 9.30%/year. This was supported by an increase in earnings per share from $5.60 in 2007 to $8.16/share in 2016. The company is expected to earn $8.61/share in 2017 and $9.38/share in 2018.The stock is overvalued at 20.80 times forward earnings and yields 2.60%. I would be interested in 3M on dips below $163/share. Check my analysis of 3M for more information about the company.

Archer-Daniels-Midland Company (ADM) procures, transports, stores, processes, and merchandises agricultural commodities and products. The company raised its quarterly dividend by 6.70% to 32 cents/share. This marked the 42nd consecutive annual dividend increase for this dividend champion. Over the past decade, the company has managed to boost annual dividends at a rate of 12.70%/year. This rapid growth in dividends was achieved mainly through the expansion in the dividend payout ratio. Earnings per share have decreased from $3.30 in 2006 to $2.98 in 2015. The company is expected to earn $2.21/share in 2016 and $2.90/share in 2017. This explains the slowing of dividend growth. The stock is at 19.80 times forward earnings and yields 2.90%. Given the lack of earnings growth from Archer Daniels Midland, I view this stock as a hold at most at this present time.

Hasbro, Inc. (HAS), together with its subsidiaries, provides children’s and family leisure time products and services worldwide. It operates through U.S. and Canada, International, Entertainment and Licensing, and Global Operations segments. The company raised its quarterly dividend by 11.80% to 57 cents/share. This marked the 14th consecutive annual dividend increase for this dividend contender. Over the past decade, the company has managed to boost annual dividends at a rate of 18.60%/year. This was supported by an increase in earnings per share from $1.97 in 2007 to $4.43/share in 2016. The company is expected to earn $4.66/share in 2017 and $4.97/share in 2018. The stock is overvalued at 21 times forward earnings and yields 2.40%. In general, I have been hesitant to buy into companies from that industry, because I view them as cyclical, overly dependent on the success of hit toys and shifts in consumer tastes, and the difficulty in identifying the one player with recurring income streams. Hasbro has been a success over the past decade, but its close competitor Mattel has not done as well. In light of the high valuation of the former, I am not interested in it at the moment.

Avista Corporation (AVA) operates as an electric and natural gas utility company. The company operates in two segments, Avista Utilities, and Alaska Electric Light and Power Company. The company raised its quarterly dividend by 4.40% to 35.75 cents/share. This marked the 15th consecutive annual dividend increase for this dividend contender. Over the past decade, the company has managed to boost annual dividends at a rate of 9.20%/year. This was supported by an increase in earnings per share from $1.46 in 2006 to $1.89/share in 2015. The company is expected to earn $2.08/share in 2016 and $2.07/share in 2018. The stock is selling at 19 times forward earnings and yields 3.70%. I think that given the slow rate of earnings and dividend growth, the stock is fully valued today. It may be an interesting idea at a P/E of 15 – 16 however.

Church & Dwight Co. (CHD), Inc. develops, manufactures, and markets household, personal care, and specialty products in the United States. It operates through three segments: Consumer Domestic, Consumer International, and Specialty Products Division. The company raised its quarterly dividend by 7% to 19 cents/share. This marked the 21st consecutive annual dividend increase for this dividend contender. Over the past decade, the company has managed to boost annual dividends at a rate of 27.30%/year. This was supported by an increase in earnings per share from $0.52 in 2006 to $1.54/share in 2015. The company is expected to earn $1.75/share in 2016 and $1.89/share in 2017.The stock is overvalued at 27.60 times forward earnings and yields 1.60%. I really like the company, but would be more interested in it on dips below $35/share. I do not want to overpay for my investments, which is why I will wait for the price to come down.

Bemis Company, Inc. (BMS) manufactures and sells packaging products in North America, Latin America, Europe, and the Asia-Pacific. The company operates through two segments, U.S. Packaging and Global Packaging. The company raised its quarterly dividend by 3.30% to 30 cents/share. This marked the 34th consecutive annual dividend increase for this dividend champion. Over the past decade, the company has managed to boost annual dividends at a rate of 4.50%/year. This was supported by an increase in earnings per share from $1.74 in 2007 to $2.48/share in 2016. The company is expected to earn $2.90/share in 2017 and $3.16/share in 2018. The stock is attractively valued at 16.80 times forward earnings and yields 2.50%. Even using past years numbers of $2.48/share, to account for the slow rate of dividend increase, the stock is cheap below 20 times earnings. I would need to post an analysis of the stock, but it does look like an interesting idea at this time.

Dr Pepper Snapple Group, Inc. (DPS) operates as a brand owner, manufacturer, and distributor of non-alcoholic beverages in the United States, Mexico, and Canada. The company operates through three segments: Beverage Concentrates, Packaged Beverages, and Latin America Beverages. The company raised its quarterly dividend by 9.40% to 58 cents/share. This marked the 8th consecutive annual dividend increase for this dividend contender. Despite the fact that Dr Pepper Snapple has not raised dividends for at least a decade, I made an exception because I think it has strong fundamentals, recurring cash flows that are supported by the nature of its products and the repeated sales for those same products by consumers. Over the past five years, the company has managed to boost annual dividends at a rate of 18.30%/year. Earnings per share increased from $2.01 in 2006 all the way to $3.97 in 2015. The company is expected to earn $4.41/share in 2016 and $4.75/share in 2017. The stock is overvalued at 21.20 times forward earnings and yields 2.50%.I would be interested in the stock on dips below $88/share.

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